On Wednesday, the CEOs of Kroger and Albertsons defended their proposed merger before federal regulators, claiming it would help lower prices and better position them against retail giants like Walmart, Costco, and Amazon.
Kroger CEO Rodney McMullen and Albertsons CEO Vivek Sankaran testified in Oregon's U.S. District Court in response to the Federal Trade Commission's (FTC) efforts to block the merger. FTC attorneys argued that the deal would reduce competition in key regions where Kroger and Albertsons are the primary competitors.
"This supermarket mega-merger comes as American consumers have faced steadily rising grocery prices in recent years. Kroger's acquisition of Albertsons would trigger further price hikes on everyday goods, worsening the financial strain on consumers nationwide," said Henry Liu, Director of the FTC's Bureau of Competition.
FTC Challenges Proposed Merger
"Essential grocery store workers would also suffer under this deal, facing the threat of their wages dwindling, benefits diminishing, and their working conditions deteriorating," Liu added. It's noteworthy that Kroger is currently being investigated for using electronic price labels to implement surge pricing in its stores nationwide.
Responding to a question from his company's lawyer, McMullen stated that prices would begin to decrease on the day of the merger. In October 2022, Kroger announced its intention to acquire Albertsons, creating the largest supermarket merger in US history.
However, the FTC filed a lawsuit in February to block the $24.6 billion deal, arguing that it would reduce competition and result in higher food prices for consumers already facing financial difficulties.
McMullen addressed a concern shared by shoppers in areas with Albertsons and Kroger-run stores, stating that Kroger was committed to maintaining all existing locations in the immediate aftermath of a merger. However, he acknowledged that future location changes or consolidations might necessitate some store closures.
Sankaran, the CEO of Albertsons, asserted that the merger would stimulate growth, benefiting both stores and union jobs, as many of its and Kroger's competitors, such as Walmart, have limited unionised workers.
Potential Impact On Jobs, Wages and Benefits
However, when questioned about his company's plans if the merger were unsuccessful, Sankaran indicated that Albertsons might consider "structural options" like job cuts, store closures, and market exits if cost reductions could not be achieved through other means. "I would have to consider that," he said. "It's a dramatically different picture with the merger than without it."
During his testimony on the merger, an FTC attorney cited a written statement Sankaran submitted to the US Senate in 2022. In it, he described Albertsons as being "in excellent financial condition." Sankaran explained that market conditions and other factors had changed since then.
The CEOs' testimonies were anticipated to be crucial elements of the three-week hearing, which is now halfway completed. If the merger is approved, the information they provide under oath regarding prices, potential store closures, and the impact on workers will likely be closely examined by the FTC in the coming years.
Kroger, headquartered in Cincinnati, Ohio, operates 2,800 stores across 35 states, encompassing brands like Ralphs, Smith's, and Harris Teeter. Recently, the retail company faced criticism from two Democratic senators, who urged McMullen to provide further details on the reasoning behind electronic shelving and its potential risks.
Albertsons, headquartered in Boise, Idaho, operates 2,273 stores across 34 states, encompassing brands like Safeway, Jewel Osco, and Shaw's. Combined, the two companies employ approximately 710,000 people.
FTC attorneys have argued that in the 22 states where Kroger and Albertsons currently compete, the two companies are closely matched in price, quality, private label products, and services like store pickup. They contend that consumers benefit from this competition and would suffer if the merger were approved.
According to company documents cited by FTC lawyers on Wednesday, Kroger and Albertsons are primary rivals in multiple regions, from southern California to the Portland metropolitan area. However, a Kroger attorney countered that Walmart remains Kroger's most significant competitor in most markets nationwide.
Temporary Block On The Merger
McMullen stated that Albertsons' prices were 10 percent to 12 percent higher than Kroger's and that the merged company would strive to bridge this pricing gap to retain customers. Walmart currently holds approximately 22 percent of US grocery sales, while the combined Kroger and Albertsons would control around 13 percent.
"We know that pricing is going to continue to go down," McMullen said. The FTC and labour union leaders oppose the proposed merger between Kroger and Albertsons, arguing that it would harm workers' wages and benefits, lead to store closures, and reduce competition in the grocery market.
The United Food and Commercial Workers International Union's Stop the Merger coalition stated that America needs more competition, not less. While Kroger committed to honouring existing labour contracts, the FTC expressed concerns about potential changes in working conditions due to contract renegotiations.
Kroger and Albertsons have agreed to sell 579 overlapping stores to C&S Wholesale Grocers to address competition concerns. The FTC alleges that C&S Wholesale Grocers, the proposed buyer of 579 overlapping stores from Kroger and Albertsons, needs to prepare to take on these stores.
Despite C&S's CEO expressing confidence in their ability to succeed, the FTC cites internal documents indicating C&S executives' scepticism about the quality of the stores and their potential desire to sell or close them.
The FTC seeks a temporary injunction to block the merger while its lawsuit proceeds. US District Judge Adrienne Nelson is expected to decide on the injunction after hearing from around 40 witnesses. If the injunction is granted, the FTC plans to hold in-house hearings starting October 1.
However, Kroger has filed a lawsuit against the FTC, arguing that the agency's internal proceedings are unconstitutional and seeking to have the merger's merits decided in federal court. Several state attorneys general have joined the FTC's lawsuit, while Washington and Colorado have filed separate cases in state courts to block the merger.
